Economic Challenges Loom As High Fiscal Deficit And Job Creation Issues Persist In New Budget

A detailed analysis of union budget 2025-26 presented by Nirmala Sitharaman, finance minister reveals critical shortcomings that demand attention, particularly in areas such as salaried employees, job creation, inflation control, wage growth, and measures to counter global trade challenges. Despite it, The Union Budget has received a praise for providing significant tax relief of rs 12 lakh per annum to the middle class and several welfare measures.

Lack of Substantial Relief for the Poor and Rural Sector; Middle-Class Benefits, but Little for Low-Income Groups: While tax exemptions benefit the middle class, lower-income groups receive limited direct relief. 

Rural Distress Overlooked: Employment schemes like MNREGA saw no significant increase, despite rising rural distress. Additionally, there were no major announcements for food security programs or direct cash transfers to the poor.

Limited Allocation for Social Sectors (Health & Education) ;Underfunded Health and Education: The budget fails to make substantial investments in health and education, sectors that urgently need stronger public spending. Healthcare spending remains below 3% of GDP, which is insufficient to bridge gaps in public healthcare infrastructure. 

Education Reforms Fall Short: While digital learning reforms are emphasized, there is no significant push to improve rural schools or recruit more teachers.

Concerns about Fiscal Deficit and Rising Debt; Higher Fiscal Deficit and Debt Risks: Increased infrastructure spending has resulted in a higher fiscal deficit, raising concerns about long-term fiscal sustainability. Market borrowing remains the primary source of financing, potentially driving up interest rates and affecting private investments. 

Unclear Revenue Plans: The absence of clear strategies for revenue generation beyond disinvestment raises concerns about the government’s ability to manage debt repayment.

No Major Boost for Job Creation; Lack of Direct Job Stimulus: While infrastructure and manufacturing sectors may generate jobs, the budget lacks a concrete employment policy, especially for the informal sector. Private sector hiring remains weak, and there are no new incentives for companies to increase their workforce.

Climate Resilience Underfunded: Measures to enhance climate resilience in agriculture remain underfunded, despite the increasing unpredictability of weather patterns. 

No Bold Reforms for Farmers: Despite subsidies and credit support, the budget fails to introduce comprehensive reforms to address farmers’ income issues. There is no substantial increase in MSP (Minimum Support Price) or procurement guarantees.

Privatisation and Disinvestment Delays; Missed Targets and Delays in Privatisation: Previous disinvestment targets have been missed, and the current budget lacks a clear roadmap for asset monetization. Public sector enterprises (PSUs) continue to be a financial burden, yet no significant privatization push has been made.

Taxation scenario; Increased Tax Burden on Certain Sectors: The increased tax burden on high-income earners and certain luxury goods may discourage investment in key industries. Additionally, there is no clear strategy to simplify GST, which continues to confuse businesses, particularly small enterprises.

Weak Focus on Green Energy Transition; Renewable Energy Investment Lags: Despite prioritizing infrastructure, there is no substantial funding boost for renewable energy. The budget lacks incentives for electric vehicles (EVs) or large-scale solar and wind power adoption, and climate change adaptation policies remain underfunded.

Positive Takeaways from the 2025-26 Union Budget
Despite its shortcomings, the Union Budget for 2025-26 offers several positive measures aimed at stimulating growth: Income Tax Reforms: Increased Tax Exemption Limit: The exemption limit has been raised from ₹7 lakh to ₹12 lakh, providing substantial relief to the middle class. This is expected to boost disposable income, increase savings, and drive consumer spending. 

Standard Deduction Benefit: The standard deduction has been increased to ₹75,000, effectively removing the income tax burden for those earning up to ₹12.75 lakh annually, encouraging spending and savings.
Promotion of Manufacturing and Exports: National Manufacturing Mission: Focused on making India a global manufacturing hub, reducing import dependency, and generating jobs. 

FDI in Insurance: The budget raises the FDI limit in the insurance sector to 100%, attracting global insurers and enhancing capital inflows. 

Infrastructure Development: Significant allocations for regional air connectivity, highway expansion, and railway modernization reflect the government’s focus on infrastructure growth. 

Support for Start-ups and Small Businesses: Incentives and Funds: The budget introduces dedicated funds and tax exemptions to encourage entrepreneurship, supporting start-ups and small businesses.

Challenges Post-Budget;
The Union Budget sets a financial trajectory, but several challenges must be addressed for effective implementation:

1st, Employment and Job Creation: Despite recovery, job growth remains sluggish, particularly in the informal sector. The budget must target manufacturing, MSMEs, and start-ups to boost employment.

2nd, Agricultural Reforms and Rural Economy: Rising rural distress and stagnant productivity require focused policy interventions to ensure tangible benefits for farmers and rural communities. The farmers are on war path for Minimum Support Price which is being put under carpet by the center.

3rd, Inflationary Pressures: Rising global oil prices and supply chain disruptions pose inflation risks, affecting consumer demand. Managing food security while controlling prices is essential.

4th, Fiscal Deficit and Debt Management: Balancing fiscal deficit control with sustained growth remains a challenge. High borrowing costs and rising interest payments could strain public finances.

5th, Revenue Generation Concerns: Achieving ambitious tax collection targets, especially from GST, could be difficult amidst global uncertainties. The success of privatization plans is crucial.

6th, Social Sector Spending: Effective utilization of health and education funds is critical to improve public services and welfare programs like MNREGA, while avoiding cuts to essential expenditures.

7th, Boosting Private Investment: Policy measures to encourage private sector investments, addressing regulatory bottlenecks, and offering stable policies are essential to attract both domestic and foreign capital.

8th, State Finances and Federalism: Financial stress in many states and their demands for higher devolution of funds presents a policy challenge that requires balancing fiscal transfers with responsible management.

9th, Global Economic Slowdown and External Risks: Geopolitical tensions and supply chain disruptions threaten export-driven sectors. Strengthening domestic demand and securing trade partnerships are vital.

Final, Implementation and Execution Bottlenecks: Efficient governance is crucial for the timely execution of projects, schemes, and initiatives. Addressing corruption, leakages, and bureaucratic delays will ensure the budget’s intended impact.

The Union Budget 2025-26 reflects a commitment to growth, welfare, and fiscal stability. By focusing on tax relief, agriculture, manufacturing, infrastructure, and entrepreneurship, the budget lays the groundwork for sustained economic development. However, the government must address the lingering issues, particularly in job creation, rural development, and social sector spending, to ensure a balanced and inclusive growth trajectory.

(Writer is senior political analyst and strategic affairs columnist)